Excerpt:direct taxation - interpretation - section 84 of income tax act, 1961 and rule 19 of income tax rules, 1962 - computation of capital for purpose of exemption under section 84 - capital employed in any form to be taken into account for purpose of section 84 - rule which provides for computation of capital cannot override express provision of section 84 - such rule to be construed in harmony with section 84. - - 1. since the respective questions referred in these three sets of references, each one of which is at the instance of the commissioner of income-tax as well as the assessee concerned for the assessment years 1963-64, 1964-65 and 1965-66, respectively, raise broadly similar points, we intend to dispose of these references by this common judgment. 73, 161 and 105 of 1975, at the.....b.k. mehta, j. 1. since the respective questions referred in these three sets of references, each one of which is at the instance of the commissioner of income-tax as well as the assessee concerned for the assessment years 1963-64, 1964-65 and 1965-66, respectively, raise broadly similar points, we intend to dispose of these references by this common judgment. 2. we will set out the typical facts as found in the statement of the case given by the income-tax appellate tribunal, ahmedabad, in income-tax references nos. 72 and 73 of 1975, so that the dispute involved in these references be appreciated in proper perspective. 3. the assessee, kaira district co-operative milk producers' union ltd., anand, is a co-operative milk producers'society registered under the bombay co-operative.....

Judgment:

B.K. Mehta, J.

1. Since the respective questions referred in these three sets of references, each one of which is at the instance of the Commissioner of Income-tax as well as the assessee concerned for the assessment years 1963-64, 1964-65 and 1965-66, respectively, raise broadly similar points, we intend to dispose of these references by this common judgment.

2. We will set out the typical facts as found in the statement of the case given by the Income-tax Appellate Tribunal, Ahmedabad, in Income-tax References Nos. 72 and 73 of 1975, so that the dispute involved in these references be appreciated in proper perspective.

3. The assessee, Kaira District Co-operative Milk Producers' Union Ltd., Anand, is a co-operative milk producers'society registered under the Bombay Co-operative Societies Act, and enjoys the position of being a pioneer society in the co-operative field of dairy industry and more particularly milk production and its allied products. It started functioning in 1946. In the course of assessment year 1963-64, corresponding to relevant previous year ending on 31st March, 1963, some questions arose in connection with the computation of capital employed by the society for purposes of the relief of tax holiday under s. 84 of the I.T. Act, 1961, and r. 19 of the I.T. Rules, 1962. On behalf of the assessee-society, a two-fold claim was made. The first claim was that half of the profits of the aforesaid previous year relating to baby food unit and cheese unit of the society be included in capital employed in these undertakings as prescribed under r. 19(5) of the aforesaid Rules as directed by this court in CIT v. Elecon Engg. Co. Ltd. : [1976]104ITR510(Guj) . Since the point was concluded, so far as this court was concerned, the Tribunal, reversing the order of the authorities below, upheld the contention of the assessee-society and directed that half of the profit of the year ending 31st March, 1963, relating to baby food unit and cheese unit should be included in the computation of the capital employed in these undertaking for purposes of granting tax holiday under s. 84 of the said Act as prescribed by r. 19(5) of the Rules thereunder. The assessee-society also claimed that the entire amount of grant-in-aid given by the Government of Gujarat for the purchase of certain machinery for baby food unit and cheese unit of the assessee-society must be added with the other capital employed by the assessee-society in these undertakings for purposes of relief under s. 84 of the said Act read with r. 19(1)(d) of the Rules thereunder. This claim did not find favour with any of the authorities right up to the Tribunal as the grant-in-aid was not given by the Gujarat Government for the specific purpose of acquiring plant and machinery for the aforesaid two project since they were more in the nature of general grants not specifically relatable to plant and machinery. The Tribunal, therefore, confirmed the orders of the authorities below rejecting the claim of the assessee-society on that count. Both the above claims were negatived for the subsequent assessment years with which we are concerned in the two other sets of references, viz., of 1964-65 and 1965-66.

4. Since the revenue has been granted certificate by this court to prefer an appeal to the Supreme Court against the decision of this court in Elecon Engg. Co. Ltd.'s case : [1976]104ITR510(Guj) , the Commissioner sought reference from the Tribunal against its decision permitting half profit of the baby food and cheese units to be added in the capital under r. 19(5) of the Rules and the Tribunal has accordingly referred the following question to us for our opinion :

'Whether the Tribunal was correct in law in holding in this case that half of the profit of the year ending on March 31, 1963, relating to the baby food unit and cheese unit should be included in the computation of capital employed in these undertakings for the purpose of relief under s. 84 of the I.T. Act, 1961, read with r. 19 of the I.T. Rules, 1962 ?'

5. Similarly, at the instance of the assessee-society, the Tribunal has referred the following question to us for our opinion as it rejected the claim of the assessee-society to include the entire amount of grant-in-aid in the capital for purposes of tax holiday :

'Whether, on the facts and in the circumstances of the case, particularly in view of the fact that grant-in-aid was not given by the Government of Gujarat for the specific purpose of acquiring the plant and machinery for the projects of baby food unit and cheese unit, the Tribunal is right in holding that the assessee is not entitled to take into account the amount of such grant-in-aid in acquisition of plant and machinery in the computation of capital employed in the said units ?'

6. These two references are numbered as Income-tax References Nos. 72 and 73 of 1975.

7. Similarly, in Income-tax References Nos. 160 and 161 of 1975, the following questions are referred to us at the instance of the Commissioner and the assessee respectively :

'Whether in computing the average capital employed for the purpose of s. 84, half of the profit of the relevant year should be added in view of r.19(5) ?'

'Whether, on the facts and in the circumstances of the case, amount of grant-in-aid by the Government was entitled to be taken into account for the purpose of capital computation under r. 19(1)(b) or for addition under r. 19(6) ?'

8. Similarly, in Income-tax References Nos. 104 and 105 of 1975, the following questions haves been referred to us at the instance of the Commissioner and the assessee respectively :

'Whether the Tribunal was justified in law in holding that in computing the average capital employed for the purpose of relief under s. 84, half the profit of the relevant year should be added in view of r. 19(5) of the I.T. Rules, 1962 ?'

'Whether, on the facts and in the circumstances of the case, particularly in view of the fact that grant-in-aid was not given by the Gujarat Government for the specific purpose of acquiring the plant and machinery for the project of baby food unit and cheese unit, and other units, the Tribunal is right in holding that the assessee is not entitled to take into account the amount of such grant-in-aid used in acquisition of the plant and machinery in the computation of capital employed in the said units ?'

9. So far as the revenue is concerned, the question referred in Income-tax Reference Nos. 72 160 and 104 of 1975 is to be answered in the affirmative and in favour of the assessee and against the revenue since the question is concluded so far as this court is concerned by its judgment in Elecon Engg. Co. Ltd. : [1976]104ITR510(Guj) . Revenue shall pay costs of these references.

10. So far as the questions referred to us in Income-tax Reference Nos. 73, 161 and 105 of 1975, at the instance of the assessee, are concerned, many contentions, principal as well as intermediary, are urged by the learned counsel for the assessee-society. Broadly stated, the main argument advanced on behalf of the assessee-society runs as under :

11. On a true construction of s. 84 of the Act, which is the main enactment granting tax holiday, the effect is that no income-tax is payable by an assessee on so much of the profits and gains derived from an industrial undertaking as does not exceed 6% per annum on the capital employed in such undertaking or business. It is the capital employed in any form which is to be the basis for determining as to what is the extent of tax holiday in a given case. R.19 of the I.T. Rules which prescribes the manner for computation, cannot override, it at all it does, the aforesaid basis for tax holiday and the court must construe different provisions contained in the said rule harmoniously with a view to effectuate the main object and purpose of the Act which is to given relief of tax holiday to new industrial undertakings and businesses on such profits and gains which do not exceed 6% per annum on the capital employed in such undertakings or business. If, on construing r. 19, the court finds that the main object or the purpose of the section, namely, tax holiday on the basis of the employment of capital is thwarted or frustrated by an apparently plain or literal reading of the provision of the rule, the court must read the provision in such a manner as to avoid manifest absurdity, apparent injustice and irrational or absurd conclusion so that the object and purpose of the main enactment cab effectuated fully. In the submission of the learned counsel for the assessee-society, the revenue must add the entire amount of grant-in-aid given by the Government for the above object of purchase of machinery and equipment for the baby food and cheese units since, in effect and substance, with the assistance of grant-in-aid the assessee-society has acquired, at least partly, the assets otherwise than by purchase inasmuch as the assessee-society has received and held grant-in-aid amount as a trustee or in any case as a donee for purposes of purchasing machinery and equipment for the said two units. The mere fact that the purchase of machinery and plant has been made by the assessee-society would not make any difference in reality to the nature of the assets so acquired, because it must be deemed to be for all intents and purposes acquisition of assets by gift. Any other view would militate against the real nature and substance of the transaction and would produce anomalous, absurd and unjustified results. If the Government itself had purchased some equipment and machinery and donated it to the assessee-society, it could not have been held that the assets so acquired were the assets purchased by the assessee-society and its value would have certainly gone into computation of capital for purposes of working out tax benefit. Merely because the Government instead of granting machinery or equipment in specie aided by grant in cash with the avowed and specific object of purchase of equipment and machinery, the form of transaction should not at all be relevant and material for purposes of determining whether it is an asset acquired by purchase by the assessee-society or is any other kind of asset. If the entire plant or some machinery have been given in gift or donation by the Government, the value thereof at the time when it became the asset of the business would have been added in computation of the capital under cl.(d) of r. 19(1), The Tribunal, according to the learned counsel, was clearly, therefore, in error in considering the machinery and plant of these two units as assets acquired by purchase and therefore, entitled to be evaluated merely on the basis of written down value as prescribed in r. 19(1)(a) read with r. 19(6) of the said Rules.

12. On behalf of the revenue, these broad contentions were sought to be repelled by making two submissions. In the first place, the Tribunal has found as a matter of fact, as is clearly borne out from the question in the two references, that the grant-in-aid was not given by the Government for the specific purpose of acquiring plant and machinery for the projects of baby food and cheese units and the grant-in-aid was a general grant by the Government by way of assistance to the whole project without being referable either in its entirety or towards its part. In the second place, it was urged on behalf of the revenue that the interpretation canvassed by the assessee-society is not only unwarranted by the relevant provisions of the rule in question but would require the relevant provisions of the rule to be re-written as something more is sought to be read in the rule than prescribed. R. 19(1), according to the learned counsel for the revenue, classifies the assets having regard to the source of their acquisition and the nature of the assets have been classified into four kinds, namely, assets acquired by purchase and subject to depreciation; assets acquired by purchase and not subject to depreciation; business debts and other assets. In the present case, according to the learned counsel for the revenue, it cannot be said that the assets are not acquired by purchase by the assessee-society and on its own showing the grant-in-aid has formed part of the general income of the assessee and has been utilised for purposes of acquisition of assets by purchase. The assets being plant and machinery, they are subject to depreciation and, therefore, their evaluation can be only on the basis of the written down value as defined in r. 19(6) of the rules read with s. 43(6) of the Act. The entire contention of the assessee about frustration of the object of the main enactment, in the submission of the learned counsel for the revenue, is misconceived inasmuch as the main enactment in s. 84 permits tax holiday on such profits and gains of new business or new undertakings as do not exceed the capital employed in such undertakings or business as computed in the prescribed manner. In other words, the employment of capital is to be computed according to the rules and if the legislative intent as evinced in the rules prescribing the manner of computation indicates different treatment for different types of assets, the assessee cannot make any grievance on that count, because the legislature has power to lay down conditions under which exemption or benefit is available and the provisions prescribing such conditions in the matter of grant of tax benefit or concession should be construed strictly. A number of intermediary contentions have been urged by both the sides which we will refer to at the appropriate stages in our judgment. It would, therefore, be profitable first to reproduce the main enactment of s. 84 and the relevant provisions of r. 19 :

'84. Income of newly established industrial undertakings or hotels. -

(1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking or business of a hotel or from any ship, to which this section applies, as does not exceed six per cent. per annum on the capital employed in such undertaking or business or ship computed in the prescribed manner.'

'19. Computation of capital employed in an industrial undertaking or a hotel. - (1) For the purposes of section 84, the capital employed in an undertaking or a hotel to which the said section applies shall be taken to be -

(a) in the case of assets acquired by purchase and entitled to depreciation -

(i) if they have been acquired before the computation period, their written down value on the commencing date of the said period;

(ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period;

(b) in the case of assets acquired by purchase and not entitled to depreciation -

(i) if they have been acquired before the computation period, their actual cost to the assessee;

(ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period;

(c) in the case of assets being debts due to the person carrying on the business, the nominal amounts of those debts;

(d) in the case of any other assets, the value of the assets when they became assets of the business :

Provided that if any such asset has been acquired within the computation period, only the average of such value shall be taken in the same manner as average cost is to be computed.

Explanation. - For the purposes of clauses (a) and (b) of this sub-rule, the value of any building, machinery or plant or any part thereof which, having been previously used for any purpose is transferred to the undertaking or hotel at the time of its formation, shall not be taken into account for computing the capital employed in cases to which the Explanation to section 84 applies......

(3) Any borrowed money and debt due by the person carrying on the business shall be deducted and in particular there shall be deducted any debts incurred in respect of the business for income-tax (including advance tax) due under any provision of the Act......'

13. It would also be necessary to dispose of the preliminary objection raised by Mr. Desai, learned advocate for the revenue. Mr. Shah for the assessee sought to rely on the Government Resolution providing financial assistance to the assessee-company for purposes of substantiating his main contention that, in effect and substance, the assets cannot be said to be assets purchased by the assessee. Mr. Desai's objection was that this resolution is not a part of the statement of case and, therefore, cannot be allowed to be produced at this stage. We are afraid we cannot uphold this preliminary contention inasmuch as the Tribunal, in para 7 of its order, has referred to the facts stated by the AAC in para. 3 of his order in appeal pertaining to assessment year 1965-66. The AAC has in the said paragraph stated as under :

'... The order of the Government dated 20-3-1961 has been shown to me in pursuance of which the amount has been received by the appellant. In my opinion, that order clearly goes to show that the appellant received the amount in question as or at least towards the cost for erecting and installing the fixed assets in question...'

14. In fact, therefore, the order was at least produced before the AAC, who for the purposes of eliciting the facts, relied on the same and drew certain inferences from those facts. The Tribunal has also referred to these facts and reached the conclusion on the basis thereof. It, therefore, cannot be said that that resolution of the Government was not produced on the record before the AAC and, therefore, cannot be looked into at this stage.

15. In Patny & Co. v. CIT : [1955]28ITR414(Orissa) , the Orissa High Court held that it is open to the High Court in a reference under the I.T. Act to look into the documents filed during the proceedings before the ITO and which form part of the record even though they are not referred to in the statement of the case made by the Tribunal and do not form part of the annexures to that statement.

16. The Supreme Court in CIT v. Ogale Glass Works Ltd. : [1954]25ITR529(SC) , in the context of the alternative contention urged on behalf of the revenue that the cheques having at the request of the assessee been posted at Delhi it should be held in the circumstances as payment in Delhi, held as under (p. 541) :

'The argument is that as the cheques were posted at Delhi at the request of the assessee payment was received by it in British India. It is said that although the language in which the question has been framed is wide enough to include this branch of the argument, the question should, nevertheless, be read as circumscribed by the facts on which the Tribunal's decision was made and should not be regarded as at large. This suggestion means that the question must be read as limited only to those facts on which alone reliance was placed in support of the argument actually advanced before the Tribunal and on which the Tribunal's decision was founded leaving out all other facts appearing on the record and even referred to in the Tribunal's order and the statements of the case. There is no warrant for such suggestion. The language of the question clearly indicates that the question of law has to be determined 'on the facts of this case'. To accede to the contention of the assessee, will involve the undue cutting down of the scope of the question by altering its language.'

17. The Supreme Court, therefore, permitted that argument to be advanced since it was also allowed by the High Court. In the present case before us, the Tribunal has, as stated above, referred to the facts stated by the AAC in para. 3 of his aforesaid order where the AAC has stated that he has seen and considered the resolution of the Government of 20th March, 1961. In the circumstances, therefore, we reject the preliminary objection raised on behalf of the revenue and we permit Mr. Shah to place on record before us the said Government resolution.

18. However, on the main contention of Mr. Shah urged on behalf of the assessee, we are not inclined to agree with him for the following reasons : In the first place, on the plain reading of the said resolution, we cannot agree with Mr. Shah that this was in effect and substance a gift of machinery and, therefore, would come within the scope of clause (a) of r. 19(1) prescribing the capital value of the assets acquired by purchase. The Tribunal has also found as a matter of fact that the assessee-company had received grant-in-aid from the Government which was credited in a separate account in the nature of reserve fund. The Tribunal also referred to the observation of the AAC that the amount of grant-in-aid was received as a cost or towards the erection of certain fixed assets and the assessee has deducted grant-in-aid from the cost of such assets and further such reduced cost has been taken for purposes of depreciation claim made by the assessee. After referring to the rival contentions, the Tribunal held in para. 8 that it did not find any substance in the alternative contention urged on behalf of the assessee that to the extent the actual cost for the purpose of depreciation allowance determined by the departmental authorities does not take into account the sum of grant-in-aid as part of the cost, a portion of the assets referable to the amount is to be regarded as not entitled to the depreciation, and it would, therefore, come for the purpose of capital computation under r. 19(1)(b). The Tribunal also stated in para. 8 that it was not in dispute between the parties that the actual cost of the various assets on which depreciation had been claimed by the assessee had to be reduced by the amount of grant-in-aid received in respect thereof and in fact the depreciation is claimed and allowed on that basis and that it was an accepted position that grant-in-aid received by the assessee had gone to reduce the price on which the depreciation had been claimed, and, therefore, the provisions of s. 43(1) since r. 19(6) (iv) defines 'written down value' to be the written down value computed under sub-s. (6) of s. 43. In other words, the contention which is now sought to be pressed in service that this is not an asset acquired by purchase and in effect and substance was a gift by the Government to the assessee-company was not advanced before the Tribunal. None the less, we have also considered that contention urged on behalf of the assessee. As stated above, on a plain reading of the said resolution of the Government, we cannot agree with Mr. Shah, and we are of the opinion that the Tribunal was right, as observed by its in its statement of case in Income-tax-Reference No. 73 of 1975, that the grant-in-aid was not given by the Gujarat Government for the specific purpose of acquiring plant and machinery for the two projects in question, and they were general grants, not specifically relatable to the plant and machinery. The entire basis of the argument on which Mr. Shah has tried to build the edifice for purposes of taking out the particular assets from the category prescribed in r. 19(1)(a), therefore, disappears.

19. Moreover, on construction of the rule, we are not in a position to accept the interpretation canvassed by Mr. Shah. It is no doubt axiomatic to say that the court must always read provision in a taxing statute and more so one providing tax concession and holiday in such a manner as to avoid manifest absurdity, apparent injustice or irrational or absurd conclusion so that the object and purpose of the main enactment can be effectuated fully (vide R. B. Jodha Mal Kuthiala v. CIT : [1971]82ITR570(SC) . It is also trite law of the rule of interpretation to say that the principle of literal construction and linguistic clearness must not be pressed so far as to result in irrational or absurd conclusion (vide CIT v. Kishoresinh Kalyansinh Solanki : [1960]39ITR522(Bom) .

20. This very Division Bench had an occasion to consider the width and import of sub-r. (5) of r. 19 in CIT v. Elecon Engineering Co. Ltd. : [1976]104ITR510(Guj) , where the Division Bench made general observation about the entire scheme contained in r. 19. The Division Bench, speaking through me, observed as under at page 515 :

'For purposes of the computation of the capital employed in the new industrial undertakings or hotels, the assets are classified into four categories, namely, (i) assets entitled to depreciation, such as building, machinery, etc.; (ii) assets not entitled to depreciations, such as raw materials, consumable stock-in-trade, etc.; (iii) assets in the nature of debts; and (iv) assets acquired otherwise than by purchase. Rule 19(1)(a)(i) and (ii) prescribes the method of valuing assets entitled to depreciation. In respect of the assets entitled to depreciation, acquired before the computation period the written down value as at the time of commencement of the computation period, is to be taken into consideration, while in respect of the additions made in the course of the computation period, the averages cost of such additions is to be taken into consideration. Rule 19(1)(b) provides for the method of valuing the assets not entitled to depreciation with reference to the date of acquisition of such assets. As regards the assets acquired before the computation period, the actual cost is to be taken into consideration, while as regards the additions made in the course of the course of the computation period, the average cost is to be taken into consideration. As regards the assets in the nature of debt, it is not clear as to which cost is to be taken into consideration, but the nominal amount of the debt is considered as the valuation of that type of assets. This is provided in rule 19(1)(c). As regards the other assets not acquired by purchase, rule 19(1)(d) provides the method of computation as actual value if acquired before the computation period and average value if acquired in the course of the computation period. After making a sum total of such cost of the valuations as prescribed in sub-rule (1) of rule 19, such debts or monies borrowed by the assessee as well as the income of the investment s of idle money s not required for the business are to be deducted. This is provided in sub-rules (3) and (4) of rule 19. It is thereafter in rule 19(5) which has been set out above that the fiction is provided for purposes of ascertaining the average amount of capital employed in a business in the courses of any computation period.'

21. The attempt of the learned advocate for the assessee that the assets in question before us should be considered to be assets acquired otherwise than by purchase and, therefore, falling within clause (d) of r. 19(1) is not well founded. Mr. Shah urged that for purposes of clause (a) of r. 19(1) we must restrict its scope and width to the assets acquired by purchase by the assessee and not any assets which have been acquired by purchase by any other person. We do see some force in this contention. However, it is not necessary for us to give final opinion on this aspect of the interpretation, because it is an admitted position here before us in these references that the assets in question were purchased by the assessee. Clause (d) is a sort of a residuary clause which prescribes the valuation of asset other than those mentioned in cls. (a)(b) and (c) of r. 19. Clause (c) pertains to assets in the nature of debts due to the assessee. It is really cls. (a) and (b) which are to be contradistinguished from clause (d). Clause (a) provides for the valuation of assets acquired by purchase and subject to depreciation while clause (b) prescribes valuation of assets purchased but not subject to depreciation. In other words, the emphasis in our opinion is not more on the source of acquisition but it is on its characteristic, namely, whether it is subject to depreciation or not. It is in that context that we have to read clause (d) which prescribes the valuation of assets other than those mentioned in cls. (a), (b) and (c). This view of our is fortified if we refer to r. 19A which provides for computation of capital employed in an industrial undertaking or a hotel or business or a ship for purposes of s. 80J of the I.T. Act. Sub-r. (2) of r. 19A so far as material for our purposes reads as under :

'(2) The aggregate of the amounts representing the values of the assets as on the first day of the computation period, of the undertaking or of the business of the hotel to which the said section 80J applies, shall first be ascertained in the following manner :

(i) in the case of assets entitled to depreciation, their written down value;

(ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee;

(iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they became assets of the business;

(iv) in the case of assets being debts due to the person carrying on the business, the nominal amount of those debts; and

(v) in the case of assets being cash in hand or bank, the amount thereof......'

22. It appears that for purposes of r. 19A which prescribes the valuation of capital for purposes of tax holiday under s. 80J the scheme appears to be more rational. Parliament has provided five counts of assets, namely, (i) assets entitled to depreciation; (ii) assets acquired by purchase but not entitled to depreciation; (iii) assets acquired otherwise than by purchase and not entitled to depreciation; (iv) debts; and (v) assets being cash in hand or at bank. The emphasis, therefore, appears to be in the direction of differntiating assets which are entitled to depreciation and assets which are not entitled to depreciation though in the later class of assets the difference is sought to be prescribed between the assets acquired by purchase and assets acquired otherwise than by purchase. In our opinion, therefore, in the present case, the assets in question being assets acquired by purchase and entitled to depreciation would come within the terms of clause (a) of r. 19(1). The necessary result of treating the assets in question as falling within clause (a) would be that the valuation would be on the basis of its written down value as defined in clause (iv) of sub-r. (6) of r. 19. Clause (iv) defines 'written down value' as one computed under sub-s. (6) of s. 43 as if for the words 'previous year', the words 'computation period' were substituted. Obviously, therefore, the written down value of the assets in question would be as provided in s. 43(6) of the I.T. Act, 1961. The written down value would be the actual cost of the assets to the assessee, Actual cost, according to s. 43(1), would mean the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Mr. Shah learned advocate for the assessee, was, therefore, at pains to impress upon us that this would work in manifest absurdity inasmuch as if the assets had been purchased by the Government and donated to the assessee by gift, the assessee would have been entitled to claim tax concession under s. 84 on the basis of the written down value of the assets in the case of previous owner for the previous year in which the assets are so acquired or the market value thereof on the data of such acquisition, whichever is less. Mr. Shah, therefore, attempted to persuade us that this must in effect be considered to be a gift and merely because the assessee performed the physical act of purchasing the assets they should not be considered to be assets acquired by purchase by the assessee. We have declined to entertain this contention in view of the findings made by the Tribunal as well as on the plain reading of the Government resolution in question. It is no doubt true that if the acquisition of the assets by the assessee in the present case is considered to be through gift, the written down value, and for that matter the actual cost of the assets in question, would be different. Mr. Shah, therefore, made an alternative attempt to persuade us that the written down value according to clause (a) of r. 19(1) must be held to be market value and not actual cost as defined in s. 43(1). Otherwise, Mr. Shah apprehends, the asset would be evaluated artificially irrespective of the actual investment of funds therein. We are afraid that this apprehension is not justified for the simple reason that assets which are entitled to depreciation would be evaluated for purposes of tax concession under s. 84 having regard to their written down value as defined in clause (iv) of sub-r. (6) of r. 19 which projects the concept of written down value as prescribed in s. 43(6) read with s 43(1). Mr. Shah, therefore, tried to point out to us that if we are inclined to accept his interpretation that clause (d) covers cases of all assets acquired otherwise than by purchase and which would, inter alia, therefore, include the assets acquired by gift, the valuation prescribed for such assets in clause (d) is the value of the assets when they become the assets of the business and the value would necessarily mean the market value. We do see some force in this argument and we must state that the scheme as contained in r. 19(1) is not very happy as the one which we find in sub-r. (2) of r. 19 A where a more rational scheme has been sought to be introduced. But, as we have stated above, the emphasis of Parliament in r. 19(1)(a) and (b) appears to be mainly on the nature of asset as one entitled to depreciation and one not entitled to depreciation and not on the source of acquisition. Mr. Shah urged that this would be ignoring one of the two per-requisites for determining cases of assets in cls. (a) and (b) of rule 19(1). According to Mr. Shah, not only the entitlement of depreciation is to be considered but also the source of acquisition, whether it is by purchase or otherwise, is also to be borne in mind. We must state that this contention of Mr. Shah though attractive, is self-defeating because on that interpretation since cl.(d) (d) includes only those assets which do not fall within cls. (a) and (b) all the assets acquired otherwise than by purchase but subject to depreciation would remain outside the purview of r.19(1). On that Interp retation also the assets in question involved in these references would not come within clause (d). The better interpretation, as stated above, appears to be, whether greater emphasis should be on the entitlement of assets to depreciation or not. If we look to cls. (i) and (ii) of sub-r. (2) of r. 19A, the interpretation, which we are preferring, appears to be more reasonable and harmonious having regard to the similarity of the purpose of the legislature in extending the tax concession either under s. 84 or under s. 80J of the I.T. Act, 1961. We do not find, therefore, any absurdity resulting on the interpretation which we are placing on cls. (a), (b), (c) and (d) or r. 19(1). For these reasons, therefore, we would not accept the interpretation sought to be canvassed by Mr. Shah that for purposes of tax holiday under s. 84 in the present reference we must take the basis of actual cost of the assets in question and not the written down value as defined in r. 19(6)(iv) of the Income-tax Rules read with s. 43(6) of the Act.

23. Mr. Shah lastly urged that if we reject the interpretation sought to be canvassed by him, it would militate against the main enactment of s. 84 of the Act. It was urged that the object or the purpose of the said section is to grant tax holiday on the basis of the employment of capital and to effectuate this purpose or object, we must not restrict the width and scope of r. 19(1)(a) and (b); otherwise the main purpose of the section would be frustrated by apparently plain and literal reading of the provision contained in the rule. In our opinion, Mr. Shah has lost sight of the main enactment contained in s. 84 which permits tax concession of such profits and gains of new business or new undertakings as do not exceed the capital employed in such undertakings or business or computed in the prescribed manner. In this connection, Mr. Shah has drawn our attention to two rulings of the Calcutta High Court in Century Enka Ltd. v. ITO : [1977]107ITR123(Cal) and Century Enka Ltd. v. ITO : [1977]107ITR909(Cal) , where the learned single judge of the Calcutta High Court has held that in so far as r. 19A(2) and (3) restrict the meaning and width of the capital employed by omitting the borrowed capital employed in the new industrial undertaking except to the extent indicated in sub-rr. (a) and (b) and also by prescribing that only that capital which is employed on the first day of the computation period should be taken as the basis, the said provisions were ultra vires the scope of the main enactment contained in s. 80J of the I.T. Act. We have not been able to appreciate how these two decisions of the Calcutta High Court can be of any assistance to the cause of Mr. Shah's client. We are not restricting the width and scope of the meaning of the term 'capital' and not excluding any capital employed in the industry. We are of the opinion that for purposes of evaluating an assets which is entitled to depreciation, the legislature has prescribed its written down value as the basis for computation of capital. If the assets is subject to depreciation, its written down value is to be taken into consideration for purposes of computing capital. It cannot be urged that the basis prescribed for computation of capital. It cannot be urged that the basis prescribed for computation of capital is so unreasonable that the asset entitled to depreciation would be in a worse position than the assets which are not entitled to depreciation. On the contrary, in our opinion, the assets entitled to depreciation would be slightly in a better position than the assets which are not entitled to depreciation, inasmuch as for net tax effect the former will have twin benefits, viz., depreciated value as well as tax holiday. In the circumstances, therefore, this aspect of the question on the interpretation does not take the case of the assessee any further. We answer the question referred to us in Income-tax Reference No. 73/75 in the affirmative and in favour of the revenue and against the assessee, in Income-tax Reference No. 161/75 in the negative and against the assessee and in favour of the revenue and in Income-tax Reference No. 105/75 in the affirmatives and in favour of the revenue and against the assessee.

24. The assessee shall pay costs of these reference to the Commissioner of Income-tax.